**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**








**FORM
      10-Q**





(Mark
      One)


x
              QUARTERLY
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934For
                  the thirteen weeks endedMarch
                  31, 2007o
              TRANSITION
                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                  ACT OF
                  1934For
                  the transition period from _______to
                  _______
  Commission
        File Number 1-5084
 
 **TASTY
        BAKING COMPANY**
 (Exact
        name of Company as specified in its charter)
 Pennsylvania
                23-1145880(State
                    of Incorporation)
                (IRS
                    Employer Identification
                    Number)
 **2801
        Hunting Park Avenue, Philadelphia, Pennsylvania 19129**
 (Address
        of principal executive offices including Zip Code)
 
 **215-221-8500**
 (Company's
        telephone number, including area code)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 YES x NO
o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
  Large
                  accelerated Filer o
              Accelerated
                  Filer x
              Non-accelerated
                  Filer o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 YES o NO x
 
 There
        were
        8,263,261 shares of Common Stock outstanding as of May 1, 2007.




**TASTY
        BAKING COMPANY AND SUBSIDIARIES**
  **INDEX**
 PART
                    I.
                FINANCIAL
                    INFORMATIONItem
                    1.
                Financial
                    Statements
                    (Unaudited)Condensed
                    Consolidated Balance
                    SheetsMarch
                    31, 2007 and December 30, 2006
                3Condensed
                    Consolidated Statements of OperationsThirteen
                    weeks ended March 31, 2007 and April 1,
                    2006
                4Condensed
                    Consolidated Statements of Cash
                    FlowsThirteen
                    weeks ended March 31, 2007 and April 1,
                    2006
                5Notes
                    to Condensed Consolidated Financial
                    Statements
                6-15Item
                    2.
                Management's
                    Discussion and Analysis of
                    FinancialCondition
                    and Results of Operations
                16-19Item
                    3.
                Quantitative
                    and Qualitative DisclosuresAbout
                    Market Risk
                19Item
                    4.
                Controls
                    and Procedures
                19PART
                    II.
                OTHER
                    INFORMATIONItem
                    1.
                Risk
                    Factors
                20Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of
                    Proceeds
                20Item
                    6.
                Exhibits
                20Signature
                
                21




-
          2 -


**Part
      I.****FINANCIAL
      INFORMATION**


**Item
        1.****Financial
        Statements**
 
 **TASTY
        BAKING COMPANY AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 (Unaudited)
 (000’s)
 **March
                    31, 2007**
                
                **December
                    30, 2006****Assets****Current
                    assets:**Cash
                
                $
                12
                
                $
                12Receivables,
                    less allowance of $2,832 and $2,455, respectively
                
                
                21,177
                
                
                17,769Inventories
                
                
                6,831
                
                
                6,926Deferred
                    income taxes
                
                
                3,040
                
                
                3,040Prepayments
                    and other
                
                
                2,108
                
                
                1,414Total
                    current assets
                
                
                33,168
                
                
                29,161**Property,
                    plant and equipment:**Land
                
                
                1,433
                
                
                1,433Buildings
                    and improvements
                
                
                43,143
                
                
                43,110Machinery
                    and equipment
                
                
                124,973
                
                
                124,501169,549
                
                
                169,044Less
                    accumulated depreciation
                
                
                105,312
                
                
                103,66064,237
                
                
                65,384**Other
                    assets:**Long-term
                    receivables from independent sales distributors
                
                
                10,809
                
                
                10,960Deferred
                    income taxes
                
                
                4,620
                
                
                4,596Other
                
                
                2,125
                
                
                2,19017,554
                
                
                17,746**Total
                    assets**
                
                $
                114,959
                
                $
                112,291**Liabilities****Current
                    liabilities:**Current
                    obligations under capital leases
                
                $
                195
                
                $
                327Notes
                    payable, banks
                
                
                631
                
                
                631Book
                    overdraft
                
                
                2,469
                
                
                2,165Accounts
                    payable
                
                
                5,723
                
                
                3,875Accrued
                    payroll and employee benefits
                
                
                6,090
                
                
                7,444Other
                
                
                3,917
                
                
                5,349Total
                    current liabilities
                
                
                19,025
                
                
                19,791Long-term
                    obligations under capital leases, less current portion
                
                
                201
                
                
                208Long-term
                    debt
                
                
                21,319
                
                
                18,177Accrued
                    pensions
                
                
                18,533
                
                
                18,724Accrued
                    other liabilities
                
                
                2,015
                
                
                1,057Postretirement
                    benefits other than pensions
                
                
                5,982
                
                
                6,065**Total
                    liabilities**
                
                
                67,075
                
                
                64,022**Shareholders'
                    equity**Common
                    stock, par value $0.50 per share and entitled to one
                
                
                4,558
                
                
                4,558vote
                    per share: Authorized 15,000 shares, issued 9,116 sharesCapital
                    in excess of par value of stock
                
                
                28,894
                
                
                28,951Retained
                    earnings
                
                
                24,863
                
                
                25,028Accumulated
                    other comprehensive income
                
                
                1,682
                
                
                1,996Treasury
                    stock, at cost
                
                
                (12,113
                )
                
                (12,264
                )Total
                    shareholders' equity
                
                
                47,884
                
                
                48,269**Total
                    liabilities and shareholders' equity**
                
                $
                114,959
                
                $
                112,291
  The
                    accompanying notes are an integral part of these unaudited condensed
                    consolidated financial statements.


-
          3 -


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


(Unaudited)


(000’s,
      except per share amounts)


**For
                  the Thirteen Weeks Ended****March
                  31, 2007**
              
              **April
                  1, 2006****Gross
                  sales**
              
              $
              70,381
              
              $
              69,333Less
                  discounts and allowances
              
              
              (26,056
              )
              
              (26,423
              )Net
                  sales
              
              
              44,325
              
              
              42,910**Costs
                  and expenses:**Cost
                  of sales, exclusive of depreciation shown below
              
              
              27,961
              
              
              26,820Depreciation
              
              
              1,652
              
              
              1,543Selling,
                  general and administrative
              
              
              13,225
              
              
              12,894Interest
                  expense
              
              
              315
              
              
              375Other
                  income, net
              
              
              (230
              )
              
              (250
              )42,923
              
              
              41,382Income
                  before provision forincome
                  taxes
              
              
              1,402
              
              
              1,528**Provision
                  for income taxes**
              
              
              526
              
              
              574**Net
                  income**
              
              $
              876
              
              $
              954**Average
                  common shares outstanding:**Basic
              
              
              8,033
              
              
              8,051Diluted
              
              
              8,270
              
              
              8,265**Per
                  share of common stock:**Net
                  income:Basic
                  and Diluted
              
              $
              0.11
              
              $
              0.12Cash
                  dividend
              
              $
              0.05
              
              $
              0.05
   The
                  accompanying notes are an integral part of these unaudited condensed
                  consolidated financial statements.


-
          4 -


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOW**


(Unaudited)


(000’s)




****
              
              **For
                  the Thirteen Weeks Ended****March
                  31, 2007**
              
              **April
                  1, 2006****Cash
                  flows from (used for) operating activities**Net
                  income
              
              $
              876
              
              $
              954Adjustments
                  to reconcile net income to netcash
                  provided by operating activities:Depreciation
              
              
              1,652
              
              
              1,543Amortization
              
              
              141
              
              
              131(Gain)
                  loss on sale of routes
              
              
              6
              
              
              (48
              )Restructure
                  payments
              
              
              -
              
              
              (145
              )Defined
                  benefit pension (benefit) expense
              
              
              (46
              )
              
              5(Increase)
                  decrease deferred taxes
              
              
              186
              
              
              (52
              )Post
                  retirement medical
              
              
              (570
              )
              
              (354
              )Other
              
              
              334
              
              
              37Changes
                  in assets and liabilities:Increase
                  in receivables
              
              
              (3,507
              )
              
              (2,104
              )Decrease
                  in inventories
              
              
              95
              
              
              210(Increase)
                  decrease in prepayments and other
              
              
              (777
              )
              
              9Increase
                  in accrued taxes
              
              
              341
              
              
              296Decrease
                  in accounts payable, accruedpayroll
                  and other current liabilities
              
              
              (1,053
              )
              
              (489
              )**Net
                  cash used for operating activities**
              
              
              (2,322
              )
              
              (7
              )**Cash
                  flows from (used for) investing activities**Purchase
                  of property, plant and equipment
              
              
              (571
              )
              
              (2,392
              )Proceeds
                  from independent sales distributor loan repayments
              
              
              641
              
              
              1,236Loans
                  to independent sales distributors
              
              
              (639
              )
              
              (1,417
              )Other
              
              
              (6
              )
              
              (57
              )**Net
                  cash used for investing activities**
              
              
              (575
              )
              
              (2,630
              )**Cash
                  flows from (used for) financing activities**Dividends
                  paid
              
              
              (411
              )
              
              (407
              )Borrowings
                  on long-term debt, net
              
              
              3,004
              
              
              2,862Net
                  increase in book overdraft
              
              
              304
              
              
              138**Net
                  cash from financing activities**
              
              
              2,897
              
              
              2,593**Net
                  decrease in cash**
              
              
              -
              
              
              (44
              )Cash,
                  beginning of year
              
              
              12
              
              
              251Cash,
                  end of period
              
              $
              12
              
              $
              207**Supplemental
                  Cash Flow Information**Cash
                  paid during the period for:Interest
              
              $
              317
              
              $
              396Income
                  taxes
              
              $
              -
              
              $
              4
   The
                  accompanying notes are an integral part of these unaudited condensed
                  consolidated financial statements.
 -
            5 -


**Notes
      to Condensed Consolidated Financial
      Statements**


(000’s,
      except share and per share amounts, unless otherwise noted)


All
      disclosures are pre-tax, unless otherwise noted.





**1.****Summary
      of Significant Accounting Policies**





***Nature
      of the Business***


Tasty
      Baking Company (the “Company”) is a leading producer of sweet baked goods and
      one of the nation’s oldest and largest independent baking companies, in
      operation since 1914. It has two manufacturing facilities, one in Philadelphia,
      PA, and a second in Oxford, PA.





***Fiscal
      Year***


The
      Company and its subsidiaries operate on a 52-53 week fiscal year, ending on
      the
      last Saturday of December. Fiscal year 2007 is a 52-week year. Fiscal year
      2006
      was a 52-week year.





***Basis
      of Presentation***


The
      condensed consolidated financial statements include the accounts of the Company
      and its subsidiaries. All significant intercompany accounts and transactions
      have been eliminated.





The
      condensed consolidated financial statements included herein have been prepared
      by the Company pursuant to the rules and regulations of the Securities and
      Exchange Commission. Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with generally accepted
      accounting principles in the United States of America (“GAAP”) have been
      condensed or omitted pursuant to such rules and regulations. In the opinion
      of the Company, the accompanying unaudited condensed consolidated interim
      financial statements reflect all adjustments, consisting of only normal
      recurring items, which are necessary for a fair statement of the results of
      operations for the periods shown.  The results of operations for such
      periods are not necessarily indicative of the results expected for the full
      year
      or for any future period.





The
      preparation of condensed consolidated financial statements in conformity with
      GAAP requires management to make estimates, judgments and assumptions that
      affect the reported amounts of assets, liabilities, revenues and expenses and
      related disclosure of contingent assets and liabilities.  On an on-going
      basis, the Company evaluates its estimates, including those related to customer
      sales, discounts and allowances, long-lived asset impairment, pension and
      postretirement plan assumptions, workers’ compensation expense and income
      taxes.  Actual results may differ from these estimates.





Certain
      prior period amounts have been reclassified to conform to current period
      presentation.





***Concentration
      of Credit*** **


The
      Company encounters, in the normal course of business, exposure to concentrations
      of credit risk with respect to trade receivables. Ongoing credit evaluations
      of
      customers’ financial conditions are performed and, generally, no collateral is
      required. The Company maintains reserves for potential credit losses and such
      losses have not exceeded management’s expectations.





***Revenue
      Recognition***


Revenue
      is
      recognized when title and risk of loss pass, which is upon receipt of goods
      by
      the independent sales distributors, retailers or third-party distributors.
      For
      route area sales, the Company sells to independent sales distributors who,
      in
      turn, sell to retailers. Revenue for sales to independent sales distributors
      is
      recognized upon receipt of the product by the distributor. For sales made
      directly to a customer or a third-party distributor, revenue is recognized
      upon
      receipt of the products by the retailer or third-party distributor.





***Sale
      of Routes***


Sales
      distribution routes are owned by independent sales distributors who purchase
      the
      exclusive right to sell and distribute Tastykake® products in defined
      geographical territories. When the Company sells routes to independent sales
      distributors, it recognizes a gain or loss on the sale. Routes sold by the
      Company are either existing routes that the Company has previously purchased
      from an independent sales distributor or newly established routes in new
      geographies. Any gain or loss recorded by the Company is based on the difference
      between the sales price and the carrying value of the route, and is recorded
      as
      a separate line item in the consolidated statements of operations. Any potential
      impairment of net carrying value is reserved as identified. The Company
      recognizes gains or losses on sales of routes when all material services or
      conditions related to the sale have been substantially performed or satisfied
      by
      the Company, which is generally as of the date of sale. In most cases, the
      Company will finance a portion of the purchase price with interest bearing
      notes, which are required to be repaid in full. Interest rates on the notes
      are
      based on Treasury yields plus a spread. The Company has no obligation to later
      repurchase a route but may choose to do so to facilitate a change in route
      ownership.





-
          6 -




***Cash
      and Cash Equivalents***


The
      Company considers all investments with an original maturity of three months
      or
      less on their acquisition date to be cash equivalents. Book overdrafts are
      recorded within current liabilities. Cash flows associated with book overdrafts
      are classified as financing activities.





***Inventory
      Valuation***


Inventories,
      which include material, labor and manufacturing overhead, are stated at the
      lower of cost or market, cost being determined using the first-in, first-out
      (“FIFO”) method. Inventory balances for raw materials, work in progress, and
      finished goods are regularly analyzed and provisions for excess and obsolete
      inventory are recorded, as necessary, based on the forecast of product demand
      and production requirements.





***Property
      and Depreciation***


Property,
      plant and equipment are carried at cost. Depreciation is computed by the
      straight-line method over the estimated useful lives of the assets. Buildings
      and improvements are depreciated over thirty-nine years. Machinery and equipment
      are depreciated over a range of seven to fifteen years. Vehicles are depreciated
      over a range of five to ten years. Spare parts are capitalized as part of
      machinery and equipment and are expensed as utilized or capitalized as part
      of
      the relevant fixed asset. Spare parts are valued using a moving average method
      and are reviewed for potential obsolescence on a regular basis. Reserves are
      established for all spare parts that are no longer usable and have no fair
      market value. Capitalized computer hardware and software is depreciated over
      five years.





Costs
      of
      major additions, replacements and betterments are capitalized, while maintenance
      and repairs, which do not improve or extend the life of the respective assets,
      are expensed as incurred. For significant projects, the Company capitalizes
      interest and labor costs associated with the construction and installation
      of
      plant and equipment and significant information technology development
      projects.





In
      accordance with Statement of Financial Accounting Standards (“SFAS”) No.144,
      long-lived assets are reviewed for impairment at least annually or whenever
      events or changes in circumstances indicate that the carrying amount may not
      be
      recoverable. In instances where the carrying amount may not be recoverable,
      the
      review for potential impairment utilizes estimates and assumptions of future
      cash flows directly related to the asset. For assets where there is no plan
      for
      future use, the review for impairment includes estimates and assumptions of
      the
      fair value of the asset, which is based on the best information available.
      These
      assets are recorded at the lower of their book value or fair value.





The
      Company has a conditional asset retirement obligation relative to asbestos
      in
      its Philadelphia manufacturing facility. Because the Company has not made any
      decision to sell, demolish or abandon the facility, the fair market value of
      any
      conditional asset retirement obligation has not been determined. The Company
      is
      not under any current obligation to remove the asbestos since it is encased
      and
      in compliance with current regulatory codes. Because the settlement date or
      range of potential settlement dates of the obligation is not estimable, the
      Company does not have sufficient information to estimate its obligation under
      FASB Interpretation No. 47, *Accounting
      for Conditional Asset Retirement Obligations.* The
      Company may have an obligation to remove the asbestos if the facility were
      to
      undergo a major renovation or be demolished.





***Grants***


The
      Company receives grants from various government agencies for employee training
      purposes. Expenses for the training are recognized in the Company’s income
      statement at the time the training takes place. When the proper approvals are
      given and funds are received from the government agencies, the Company records
      an offset to the training expense already recognized.





In
      addition, in 2006, in conjunction with The Reinvestment Funds, Allegheny West
      Foundation and the Department of Community and Economic Development of the
      Commonwealth of Pennsylvania (the “DCED”), the Company activated Project Fresh
      Start (the “Project”). The Project is an entrepreneurial development program
      that provides an opportunity for qualified minority entrepreneurs to purchase
      routes from independent sales distributors. The source of grant monies for
      this
      program is the DCED. The grants are used by minority applicants to partially
      fund their purchase of an independent sales distribution route.





-
          7 -




Because
      the Project’s grant funds merely pass through the Company in its role as an
      intermediary, the Company records an offsetting asset and liability for the
      total amount of grants as they relate to the project. There is no income
      statement impact related to the establishment of, or subsequent change to,
      the
      asset and liability amounts.





***Marketing
      Costs***


The
      Company expenses marketing costs, which include advertising and consumer
      promotions, as incurred or as required in accordance with Statement of Position
      93-7, *Reporting
      on Advertising Costs* .
      Marketing costs are included as a part of selling, general and administrative
      expense.





***Computer
      Software Costs***


The
      Company capitalizes certain costs, such as software coding, installation and
      testing that are incurred to purchase or create and implement internal use
      computer software in accordance with Statement of Position 98-1, *Accounting
      for Costs of Computer Software Development or Obtained for Internal
      Use* .
      The
      majority of the Company’s capitalized software relates to the implementation of
      the enterprise resource planning (“ERP”) and handheld computer
      systems.





***Freight,
      Shipping and Handling Costs***


Outbound
      freight, shipping and handling costs are included as a part of selling, general
      and administrative expense. Inbound freight, shipping and handling costs are
      capitalized with inventory and expensed with cost of sales.





***Pension
      Plan***


The
      Company’s funding policy for the pension plan is to contribute amounts
      deductible for federal income tax purposes plus such additional amounts, if
      any,
      as the Company’s actuarial consultants advise to be appropriate. In 1987 the
      Company elected to immediately recognize all gains and losses in excess of
      the
      pension corridor.





The
      Company accrues normal periodic pension expense or income during the year based
      upon certain assumptions and estimates from its actuarial consultants. These
      estimates and assumptions include discount rate, rate of return on plan assets,
      compensation increases, mortality and employee turnover. In addition, the rate
      of return on plan assets is directly related to changes in the equity and credit
      markets, which can be very volatile. The use of the above estimates and
      assumptions, market volatility and the Company’s election to immediately
      recognize all gains and losses in excess of its pension corridor in the current
      year may cause the Company to experience significant changes in its pension
      expense or income from year to year. Expense or income that falls outside the
      corridor is recognized only in the fourth quarter of each year.





On
      September 29, 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans* (“FAS
      158”).  FAS 158 requires employers to recognize on their balance sheets a
      liability or an asset equal to the under-funded or over-funded status of their
      defined benefit plans and other postretirement benefit plans, respectively.
      The
      Company adopted FAS 158 as of its fiscal year-end, December 30, 2006.





***Accounting
      for Derivative Instruments***


The
      Company has entered into certain variable-to-fixed interest rate swap contracts
      to fix the interest rates on a portion of its variable interest rate debt.
      These
      contracts are accounted for as cash flow hedges
      in
      accordance with FASB Statement No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* .
      Accordingly, these derivatives are marked to market and the resulting gains
      or losses
      are recorded in other comprehensive income as an offset to the related hedged
      asset or liability. The actual interest expense incurred, inclusive of the
      effect of the hedge in the current period, is recorded in the Statement of
      Operations.





***Treasury
      Stock***


Treasury
      stock is stated at cost. Cost is determined by the FIFO method.





***Accounting
      for Income Taxes***


The
      Company accounts for income taxes under the asset and liability method, in
      accordance with FASB Statement No. 109, *Accounting
      for Income Taxes* .
      Deferred
      tax assets and liabilities are determined based on differences between financial
      reporting and tax bases of assets and liabilities and are measured using the
      enacted tax rates in effect when the differences are expected to be recovered
      or
      settled.





-
          8 -




***Net
      Income Per Common Share***


Net
      income
      per common share is presented as basic and diluted earnings per share. Net
      income per common share - Basic is based on the weighted average number of
      common shares outstanding during the period. Net income per common share -
      Diluted is based on the weighted average number of common shares and dilutive
      potential common shares outstanding during the period. Dilution is the result
      of
      outstanding stock options and restricted shares.





***Share-based
      Compensation***


The
      Company accounts for share-based compensation in accordance with FASB Statement
      No. 123(R), *Share-Based
      Payment* (“FAS
      123(R)”). Share-based compensation expense recognized during the current period
      is based on the value of the portion of share-based payment awards that is
      ultimately expected to vest. The total value of compensation expense for
      restricted stock is equal to the closing market price of Tasty Baking Company
      shares on the date of grant. FAS 123(R) requires forfeitures to be estimated
      at
      the time of grant in order to estimate the amount of share-based awards that
      will ultimately vest. The forfeiture rate is based on the Company’s historical
      forfeiture experience. The Company calculated its historical pool of windfall
      tax benefits.





***Recent
      Accounting Statements***


In
      September 2006, the FASB issued Statement No. 157, *Fair
      Value Measurements* (“FAS
      157”), which creates a single definition of fair value, along with a conceptual
      framework to measure fair value and to increase the consistency and the
      comparability in fair value measurements and in financial disclosure. This
      statement is effective for the 2008 fiscal year, although early adoption is
      permitted. The Company is currently evaluating the extent to which its current
      practices, financial statements and disclosures may change as a result of the
      adoption of FAS 157.





In
      February 2007, the FASB issued Statement No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115* (“FAS
      159”). This statement permits, but does not require, entities to measure certain
      financial instruments and other assets and liabilities at fair value on an
      instrument-by-instrument basis and is irrevocable. At the adoption date,
      unrealized gains and losses on financial assets and liabilities for which the
      fair value option has been elected would be reported as a cumulative adjustment
      to beginning retained earnings. Unrealized gains and losses due to changes
      in
      their fair value must be recognized in earnings at each subsequent reporting
      date. This statement is effective for fiscal years beginning after November
      15,
      2007. The Company is currently evaluating the extent to which its current
      practices, financial statements and disclosures may change as a result of the
      adoption of FAS 159.








**2.****Restructure
      Charges**





From
      fiscal years 2001 to 2005, the Company implemented several strategies that
      resulted in restructuring charges and accrued restructuring obligations. During
      the thirteen week period ended April 1, 2006, the Company made payments related
      to restructuring obligations of $145 and as of December 30, 2006 no
      restructuring obligations remained.








**3.** **Inventories**





Inventories
      are classified as follows:




**March
                  31, 2007**
              
              
              **Dec.
                  30, 2006**Finished
                  goods
              
              $
              1,404
              
              $
              1,575Work
                  in progress
              
              
              184
              
              
              159Raw
                  materials and supplies
              
              
              5,243
              
              
              5,192$
              6,831
              
              $
              6,926





The
      inventory balance has been reduced by reserves for obsolete and slow-moving
      inventories of $78 as of March 31, 2007 and December 30, 2006.




-
          9 -




**4.****Credit
      Facility**





On
      September 13, 2005, the Company entered into the Amended and Restated Credit
      Agreement (“Amended Credit Agreement”) to replace its prior credit facility. The
      Amended Credit Agreement increased the commitment from $30 million to $35
      million; changed the terms from secured to unsecured; extended the maturity
      from
      a three-year term to a five-year term expiring in September 2010; eliminated
      the
      short-term portion and reduced the interest rate margins and the commitment
      fees
      charged to the Company as described in the Amended Credit Agreement.
      Modifications have also been made to the Tangible Net Worth covenant and the
      Funded Debt covenant that make them less restrictive. Interest rates in the
      Amended Credit Agreement are indexed to LIBOR based upon the Company’s ratio of
      debt to EBITDA and rates may decrease up to 50 basis points based on that ratio.
      Commitment fees are charged on the unused portion of the commitment and range
      from 10 to 25 basis points based upon the same ratio used to determine interest
      rates. The proceeds from the Amended Credit Agreement will be used for general
      corporate purposes and such other uses as permitted.





On
      September 13, 2005, the Company also entered into a term loan for $5.3 million.
      The term loan is based upon a 15 year amortization with a scheduled maturity
      in
      five years due in September 2010. The terms and conditions of the term loan
      are
      generally the same as those in the Amended Credit Agreement. The entire proceeds
      of the term loan were used to fund a voluntary contribution to the defined
      benefit pension plan (the “DB Plan”).





On
      December 19, 2005, the Company also entered into a mortgage loan of $2.15
      million which is secured by the Philadelphia manufacturing facility (“Hunting
      Park Bakery”) as collateral, and a second term loan for $2.55 million to fund
      the purchase of the Hunting Park Bakery building and land for a total purchase
      price of $4.7 million from the Company’s DB Plan. The mortgage loan is based
      upon a 20 year amortization with a scheduled maturity in ten years due in
      December 2015. The term loan is based upon a 15 year amortization with a
      scheduled maturity in five years due in September 2010. The terms and conditions
      of the mortgage loan and the term loan are generally the same as those in the
      Amended Credit Agreement.





In
      order
      to hedge a portion of the Company’s exposure to changes in interest rates the
      Company entered into a five-year $6 million interest rate swap on August 3,
      2005, with a fixed LIBOR rate of 4.64%. The Company also entered into two
      five-year interest rate swaps for its term loans for $5.3 and $2.55 million
      on
      September 13 and December 21, 2005 with fixed LIBOR rates of 4.42% and 4.99%,
      respectively. Also on December 21, 2005 the Company entered into a ten-year
      $2.15 million interest rate swap for its mortgage loan with a fixed LIBOR rate
      of 5.08%. The LIBOR rates above are subject to an additional credit spread
      which
      can range from 75 basis points to 140 basis points.








**5.****Defined
      Benefit Retirement Plans**





The
      Company maintains a partially funded noncontributory DB Plan providing
      retirement benefits. Benefits under this DB Plan generally are based on the
      employees’ years of service and compensation during the years preceding
      retirement. The Company maintains a defined benefit salaried employee retirement
      plan (the “DB SERP”) for key employees designated by the Board of Directors,
      however, there are no current employees earning benefits under this plan. See
      Note 8 for more information. The Company also maintains an unfunded Directors’
Retirement Plan. The benefit amount is the annual retainer in the year of
      retirement.





Effective
      February 15, 2007, benefits accruals under the Directors’ Retirement Plan were
      frozen for current directors and future directors were precluded from
      participating in the plan. Participants are credited for service under the
      Directors’ Retirement Plan after February 15, 2007 solely for vesting purposes.
      On February 15, 2007, the Board of Directors approved a Deferred Stock Unit
      Plan
      (the “DSU Plan”). The DSU Plan provides that for each fiscal quarter, the
      Company will credit deferred stock units (“DSUs”) to the director’s account
      equivalent in value to $4 on the last day of such quarter, provided that he
      or
      she is a director on the last day of such quarter. Directors will be entitled
      to
      be paid shares in an amount equal to the aggregate DSUs in the director’s
      account upon termination of Board service provided the director has at least
      five years of continuous service on the Board. The shares may be paid out in
      a
      lump sum or at the director’s election, over a period of five
      years.





In
      December 2004, the Company announced to its employees that it was amending
      the
      DB Plan to freeze benefit accruals effective March 26, 2005. Effective March
      27,
      2005, the Company adopted a new company funded defined contribution plan (the
      “DC Plan”) which is a defined contribution benefit that replaces the benefit
      provided in the DB Plan. See Note 6 in the financial statements.





-
          10 -




The
      components of the DB Plan, DB SERP, and DB Directors’ Retirement Plan’s costs
      are summarized as follows:




**Thirteen
                  Weeks Ended****3/31/07**
              
              **4/1/06**Service
                  cost-benefits earned during the quarter
              
              $
              5
              
              $
              6Interest
                  cost on projected benefit obligation
              
              
              1,243
              
              
              1,242Expected
                  return on plan assets
              
              
              (1,306
              )
              
              (1,265
              )Prior
                  service cost amortization
              
              
              (4
              )
              
              (4
              )Actuarial
                  loss recognition
              
              
              16
              
              
              -SERP
                  amendment
              
              
              -
              
              
              26Net
                  DB pension amount charge to income
              
              $
              (46
              )
              $
              5


**6.****Defined
      Contribution Retirement Plans**





The
      Company maintains a funded retirement DC Plan, which is a defined contribution
      benefit plan that replaced the benefits provided in the DB Plan. Under the
      DC
      Plan, the Company makes weekly cash contributions into individual accounts
      for
      all eligible employees. These contributions are based on employees’ point values
      which are the sum of age and years of service as of January 1 each year. All
      employees receive contributions that range from 2% to 5% of eligible
      compensation relative to their point totals. Employees at March 27, 2005, who
      had 20 years of service or 10 years of service and 60 points, received an
      additional “grandfathered” contribution of between 1.5% and 3.5% of salary. The
“grandfathered” contribution percentage was fixed as of March 27, 2005, and is
      paid weekly with the regular contribution until those covered employees retire
      or separate from the Company. These “grandfathered” contributions are being made
      to compensate older employees for the shorter earnings period that their
      accounts will have to appreciate in value relative to their normal retirement
      dates.





The
      Company also maintains the Tasty Baking Company 401(k) and Company Funded
      Retirement Plan (“Retirement Plan”). In the Retirement Plan, all participants
      receive a company match of 50% of their elective deferrals that do not exceed
      4%
      of their compensation as defined in the Retirement Plan. Under the Retirement
      Plan, the waiting period for participation has been eliminated and participants
      are offered a broad array of investment choices.





The
      Company also maintains an unfunded defined contribution SERP (“DC SERP”) for one
      eligible active employee.





Components
      of DC pension amount charged to income:




**Thirteen
                  Weeks Ended****3/31/07**
              
              **4/1/06**Funded
                  retirement plan
              
              $
              516
              
              $
              479Defined
                  contribution SERP
              
              
              90
              
              
              71Net
                  DC pension amount charge to income
              
              $
              606
              
              $
              550







**7.****Postretirement
      Benefits Other than Pensions**





In
      addition to providing pension benefits, the Company also provides certain
      unfunded health care and life insurance programs for substantially all retired
      employees, or Other Postretirement Benefits (OPEB). These benefits are provided
      through contracts with insurance companies and health service providers. In
      2005, the Company amended the medical benefits paid for retirees by eliminating
      coverage for most post-65 retirees as of January 1, 2006. Coverage is maintained
      for all pre-65 retirees and for certain post-65 retirees who had qualifying
      dependents that were pre-65. Simultaneous with the change in medical coverage,
      life insurance for incumbent retirees at company group rates was capped at
      $20
      of coverage. Incumbent retirees who purchase coverage in excess of $20 and
      all
      new retirees after January 1, 2006 pay age-based rates for their life insurance
      benefit.




-
          11 -




Components
      of net periodic postretirement benefit cost/(benefit):


**Thirteen
                  Weeks Ended****3/31/07**
              
              **4/1/06**Service
                  cost
              
              $
              67
              
              $
              63Interest
                  cost
              
              
              92
              
              
              90Amortization
                  of unrecognized prior service cost
              
              
              (457
              )
              
              (411
              )Amortization
                  of unrecognized gain
              
              
              (29
              )
              
              (29
              )Total
                  FAS 106 net postretirement benefit
              
              $
              (327
              )
              $
              (287
              )





Estimated
      company contributions for the thirteen weeks ended March 31, 2007 and April
      1,
      2006 were $151 and $156, respectively.








**8.** **Stock
      Compensation**





At
      the
      2006 Annual Meeting of Shareholders of the Company held on May 11, 2006, the
      Company's shareholders approved the Tasty Baking Company 2006 Long-Term
      Incentive Plan (the "2006 Plan") as adopted by the Company's Board of Directors
      (the "Board") on March 24, 2006. The aggregate number of shares available for
      grant under the Plan is 296,339 shares of the Company’s common stock .





The
      Plan
      authorizes the Compensation Committee (the "Committee") of the Board to grant
      awards of stock options, stock appreciation rights, unrestricted stock,
      restricted stock (“RSA”) (including performance restricted stock) and
      performance shares to employees, directors and consultants or advisors of the
      Company. The option price is determined by the Committee and, in the case of
      incentive stock options, will be no less than the fair market value of the
      shares on the date of grant. Options lapse at the earlier of the expiration
      of
      the option term specified by the Committee (not more than ten years in the
      case
      of incentive stock options) or three months following the date on which
      employment with the Company terminates.





The
      Company also has active 2003 and 1997 Long-Term Incentive Plans. The aggregate
      number of shares available for grant under the 2003 plan is 56,094 and under
      the
      1997 plan is 105,661. The terms and conditions of the 2003 and 1997 plans are
      generally the same as the 2006 Plan. A notable difference is that the 1997
      plan
      can award shares only to employees of the Company while the 2003 plan can only
      award shares to employees and directors of the Company. Under the terms of
      the
      1997 Long-Term Incentive Plan, options to purchase a total of 375,000 common
      shares may be granted to key executives of the Company. Upon grant, options
      become exercisable in five equal installments beginning on the date of grant
      until fully exercisable after four years. The option price is determined by
      the
      Committee and, in the case of incentive stock options, will be no less than
      the
      fair market value of the shares on the date of grant. Options lapse at the
      earlier of the expiration of the option term specified by the Committee (not
      more than ten years in the case of incentive stock options) or three months
      following the date on which employment with the Company terminates. The Company
      also has options outstanding under the 1994 Long-Term Incentive Plan, the terms
      and conditions of which are similar to the 1997 Long-Term Incentive Plan.





On
      December 16, 2005, the Board and the Committee approved the acceleration of
      vesting of all outstanding, unvested stock options previously awarded to the
      Company’s employees, officers (including executive officers) and directors under
      the Company’s 1994, 1997 and 2003 Long-Term Incentive Plans. All unvested stock
      options were “out-of-the-money” as of the closing stock price on December 16,
      2005, with a range of exercise prices from $7.55 to $11.30 per share. As a
      result of the acceleration, stock options to acquire approximately 173,167
      shares of the Company’s common stock became exercisable on December 31, 2005,
      85% of which were scheduled to vest during 2006. Of the total number of shares
      underlying the accelerated stock options, approximately 27,998 were held by
      directors and 114,394 were held by executive officers.





All
      other
      terms and conditions applicable to these stock options, including exercise
      prices and holding period requirements, remain unchanged. The Company had
      previously imposed a five-year holding period requirement on any shares obtained
      through the exercise of options awarded on or after August 7, 2003. Only 35,000
      of the currently unvested options are not subject to this requirement, with
      the
      lowest exercise price on those options set at $8.60 per share. Accordingly,
      this
      holding period requirement is expected to prevent unintended benefits to the
      holders of the majority of these stock options as a result of this accelerated
      vesting. The purpose of this accelerated vesting is to enable the Company to
      avoid recognizing compensation expense associated with these options in future
      periods as required by FAS 123(R), *Share
      Based Payment* ,
      which
      the Company adopted by January 1, 2006. As a result of the acceleration of
      vesting, the Company reduced the non-cash, pre-tax compensation expense it
      would
      otherwise have been required to record by approximately $410 over the original
      option vesting period, including approximately $360 in fiscal 2006.





-
          12 -




Notwithstanding
      the vesting and termination provisions described above, under the terms of
      the
      Change of Control Agreements and Employment Agreements that the Company entered
      into with certain executive officers, upon a change of control, the shares
      granted as RSAs vest and any restrictions on outstanding stock options lapse
      immediately. Additionally, under the terms of those agreements, in certain
      change of control circumstances, shares granted as RSAs may vest after
      termination of employment.





A
      summary
      of stock options as of March 31, 2007 is presented below:


**Weighted-Average**
              
              
              **Weighted-Average**
              
              
              **Aggregate
                  Intrinsic****Shares
                  (000’s)**
              
              
              **Exercise
                  Price**
              
              
              **Remaining
                  Contractual Term**
              
              
              **Value
                  (000s)**Outstanding
                  at Dec. 30, 2006
              
              
              456
              
              $
              10.52Granted
              
              
              -
              
              
              -Forfeited
              
              
              (5
              )
              
              10.78Exercised
              
              
              -
              
              
              -Outstanding
                  at March 31, 2007
              
              
              451
              
              $
              10.52
              
              
              5.55
              
              $
              1,087Options
                  exercisable at March 31, 2007
              
              
              451
              
              $
              10.52
              
              
              5.55
              
              $
              1,087





As
      of
      March 31, 2007, there was no unrecognized compensation related to nonvested
      stock options. For the thirteen weeks ended March 31, 2007, there were no
      options granted and there was no cash received from option exercises. There
      was
      no compensation expense recognized in the Condensed Consolidated Statements
      of
      Operations for stock options in the three month periods ended March 31, 2007
      and
      April 1, 2006.





The
      Company recognizes expense for restricted stock using the straight-line method
      over the requisite service period. A summary of the restricted stock as of
      March
      31, 2007 is presented below:


**Shares
                  (000’s)**
              
              
              **Weighted-Average
                  Fair Value**Nonvested
                  at December 30, 2006
              
              
              180
              
              $
              7.65Granted
              
              
              50
              
              
              8.70Forfeited
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Nonvested
                  at March 31, 2007
              
              
              230
              
              $
              7.88






As
      of
      March 31, 2007, there was $1.195 million of unrecognized compensation cost
      related to nonvested restricted stock which is expected to be recognized over
      a
      weighted-average period of approximately 3.31 years.








**9.****Income
      Taxes**





In
      June
      2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertain Tax Positions, an Interpretation of FAS 109.* FIN
      48
      establishes a single model to address accounting for uncertain tax positions.
      FIN 48 clarifies the accounting for income taxes by prescribing a minimum
      recognition threshold a tax position is required to meet before being recognized
      in the financial statements. FIN 48 also provides guidance on derecognition,
      measurement classification, interest and penalties, accounting in interim
      periods, disclosure and transition. Upon adoption, the Company recognized a
      charge of approximately $631 to the December 31, 2006 beginning retained
      earnings balance for long-term unrecognized income tax benefits.





At
      the
      adoption date of December 31, 2006, the Company had $835 of unrecognized tax
      benefits, including $402 of interest and penalties, all of which would affect
      the effective tax rate if recognized. At March 31, 2007, the Company has $859
      of
      unrecognized tax benefits. The Company recognizes potential interest and
      penalties related to unrecognized tax benefits in income tax expense, and at
      March 31, 2007, had $414 of interest and penalties included as a component
      of
      unrecognized tax benefits.





-
          13 -




Tasty
      Baking Company and its subsidiaries are subject to U.S. federal income tax
      as
      well as income tax of multiple state jurisdictions. The Company has
      substantially concluded all U.S. federal income tax matters for years through
      2002. Substantially all material state income tax matters have been concluded
      through 2001. Currently
      there are no ongoing income tax audits for any of the tax years that remain
      open
      to examination by various taxing jurisdictions. The Company does not anticipate
      that total unrecognized tax benefits will significantly change due to the
      expiration of the statue of limitations with respect to any open tax year prior
      to March 31, 2008.








**10.****Accumulated
      Other Comprehensive Income/(Loss)**


**Pension**
              
              
              **Interest**
              
              
              **OPEB**
              
              
              
              
              
              **Comprehensive****Plan**
              
              
              **Rate
                  Swap**
              
              
              **Plan**
              
              
              **Total**
              
              
              **Income
                  (Loss)**Balance
                  at December 31, 2006
              
              $
              (3,511
              )
              $
              84
              
              $
              5,423
              
              $
              1,996Net
                  income for Q1, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              876Q1
                  2007 activity, net of tax of $5, $23 and $195
              
              
              7
              
              
              (29
              )
              
              (292
              )
              
              (314
              )
              
              (314
              )Balance
                  at March 31, 2007
              
              $
              (3,504
              )
              
              55
              
              
              5,131
              
              
              1,682
              
              $
              562







**11.****Subsequent
      Events**





On
      May 9,
      2007 the Company announced that as part of its comprehensive operational review
      of strategic manufacturing alternatives, it entered into a lease agreement
      to
      relocate its Philadelphia operations to the Philadelphia Navy Yard. This
      agreement provides for a 26-year lease for a 345,500 square foot bakery on
      25
      acres, which will include a warehouse and distribution center. The lease
      provides for no rent payments in the first year of occupancy. Rental payments
      increase from $3.5 million in the second year of occupancy to $7.2 million
      in
      the final year of the lease. As part of this initiative, the Company also
      entered into a 16-year tenant improvements agreement for $9.5 million in
      facility improvements. This agreement provides for no payments in the first
      year
      of occupancy and then requires equal monthly payments of $0.1 million over
      the
      remainder of the term. Site preparation is expected to begin immediately and
      construction is expected to be completed by the end of 2009. The Company expects
      the new facility to be fully operational in 2010. In connection with these
      agreements, The Company is required to provide an initial $1 million letter
      of
      credit, which will increase to $8 million by the beginning of 2009. The
      outstanding amount of the letter of credit will be reduced starting in year
      17
      and will be eliminated by year 26 of the lease term. The Company is also
      obligated to enter into an agreement to lease approximately 35,000 square feet
      of nearby corporate office space for its headquarters as a condition of the
      agreements described above.





In
      addition to the facility leases, the Company expects to purchase high-tech,
      modern baking equipment. This equipment is designed to increase product
      development flexibility and efficiency, while maintaining existing taste and
      quality standards. The investment for this project, in addition to any costs
      associated with the facility leases described above, is projected to be
      approximately $75 million through 2010. To finance this investment and refinance
      the Company’s existing revolving credit facilities, as well as to provide for
      financial flexibility in running the ongoing operations and working capital
      needs, the Company has received commitments for a $90 million multi-bank credit
      facility and has received approvals for $32 million in low-interest development
      loans provided in part by the Commonwealth of Pennsylvania and the Philadelphia
      Industrial Development Corporation.





The
      Company anticipates that long-lived assets utilized in the Philadelphia
      operations with an aggregate net book of approximately $17 million will be
      relocated to the new facilities, while long-lived assets with an aggregate
      net
      book value totaling approximately $29 million will not be relocated. The Company
      accounts for disposal and exit activities in accordance with FAS 146, *Accounting
      for Costs Associated with Exit or Disposal Activities* (“FAS
      146”) and FAS 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* (“FAS
      144”). To date, the Company has not incurred any material obligations related to
      one-time termination benefits, contract termination costs or other associated
      costs as described in FAS 146.




-
          14 -




As
        part of
        the commitment to the relocation plan, the Company has also re-evaluated
        the
        long-lived assets utilized in its Philadelphia operations for potential
        impairment or other treatment in accordance with FAS 144. Based on the
        commitment to the planned relocation, neither the assets to be relocated
        nor the
        assets to be left in place at the Philadelphia operations have suffered an
        impairment. Therefore the estimated fair value of the asset groups continues
        to
        exceed the carrying amount of such asset groups. With respect to the group
        of
        assets not expected to be relocated and with an aggregate net book value
        of
        approximately $29 million, certain of the assets included in the group had
        previously estimated useful lives that extended beyond the expected project
        completion in early 2010. As such, the Company has changed the estimate of
        the
        remaining useful lives of such assets to be consistent with the time remaining
        until the end of the project. The Company accounts for such changes in estimates
        in accordance with FAS154, *Accounting
        Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB
        Statement No. 3* and will
        disclose the impact of such changes on both earnings and earnings per share
        during the second quarter of 2007, the period in which the change in estimate
        will be made.


As
      part of
      the relocation of its Philadelphia operations, the Company expects to eliminate
      approximately 215 positions. While the Company hopes to achieve this result
      through normal attrition and the reduction of contract labor, it is probable
      that the Company will incur obligations related to post employment benefits
      accounted for under FAS 112, *Employers'
      Accounting for Postemployment Benefits, an amendment of FASB Statements No.
      5
      and 43* .
      Due to
      uncertainties regarding the extent to which the Company will be successful
      in
      managing the reductions through normal attrition and the reduction of contract
      labor, the Company cannot reasonably estimate the amount of such obligations
      or
      provide a meaningful range of loss with respect to such obligations at this
      time.




-
          15 -




**Item
      2.****Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation**


(000’s,
      except share and per share amounts unless otherwise noted)


All
      disclosures are pre-tax, unless otherwise noted.





**Results
      of Operations**





**For
      the Thirteen Weeks ended March 31, 2007**





**Overview**





Net
      income
      for the first quarter of 2007 was $876 or $0.11 per fully-diluted share. Net
      income for the first quarter of 2006 was $954 or $0.12 per fully-diluted share.
      Net income decreased $78, or 8.2%, and earnings per share decreased $0.01,
      or
      8.0%, compared to the same quarter last year.





**Sales**





Gross
      sales increased 1.5% in the first quarter of 2007 versus the same period in
      the
      prior year due to a 3.5% volume increase. Gross sales did not increase at the
      same rate as sales volume due to a shift in mix between route and non-route
      sales as well as a change in product mix within each of those channels.
      Non-route net sales increased 13.6% versus the same period a year ago driven
      by
      expanded distribution among third-party distributors and strong growth within
      existing direct customers. Route net sales increased 0.4% versus the same period
      in 2006. The increase was driven by improved price realization stemming from
      lower discounts and allowances as a percentage of sales.





**Cost
      of Sales**





Cost
      of
      sales for the first quarter of 2007 increased 4.3% versus the first quarter
      of
      2006. The increase in cost of sales was primarily driven by the volume increase
      as well as by a shift in sales mix. The impact of industry-wide cost increases
      for certain ingredients, including sugar, eggs and other commodity costs, was
      offset by a 5.5% reduction in fixed manufacturing expense. The Company also
      benefited from a $232 recovery of certain insurance claims during the quarter.





**Gross
      Margin**





Gross
      margin increased 1.1% in the first quarter of 2007 compared to the first quarter
      of 2006. This increase resulted from higher sales volumes and improved net
      sales
      realization, which were only partially offset by the increase in cost of goods
      sold.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses for the first quarter of 2007 decreased
      to
      29.8% of net sales, compared to 30.0% of net sales in the first quarter of
      2006.
      Towards the end of the first quarter of 2007, the Company launched a television
      advertising campaign aimed at supporting the Company’s brands and new products
      and at increasing sales volumes. The costs associated with this campaign and
      higher transportation costs were offset by cost reductions, including those
      in
      workers’ compensation and other employee related costs.





**Depreciation**





Depreciation
      expense for the first quarter of 2007 increased $109, or 7.1%, compared to
      the
      same period a year ago.





**Non-Operating
      Items**





Interest
      expense decreased by $60, or 16.0%, in the first quarter of 2007 compared to
      the
      first quarter of 2006. This was due to decreased borrowing levels resulting
      from
      improved cash flow and working capital, as well as a reduction of debt in the
      second half of 2006, which included a $1,600 cash receipt from Keystone
      Redevelopment Partners, LLC for an option agreement. The Company is exposed
      to
      market risk relative to its interest expense as its notes payable and long-term
      debt have floating interest rates that vary with the conditions of the credit
      market.





Other
      income, net, decreased by $20 in the first quarter of 2007 compared to the
      first
      quarter of 2006.





The
      effective income tax rate for state and federal taxes was 37.5% and 37.6% for
      the thirteen weeks ended March 31, 2007 and April 1, 2006, respectively.





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          16 -




**Liquidity
      and Capital Resources**





Current
      assets at March 31, 2007, were $33,168 compared to $29,161 at December 30,
      2006,
      and current liabilities at March 31, 2007, were $19,025 compared to $19,791
      at
      December 30, 2006. The increase in current assets was primarily driven by an
      increase in receivables of $3,408, resulting from higher sales, as well as
      an
      increase in prepayments and other of $694. The $766 decrease in current
      liabilities was driven by a reduction in obligations associated with employee
      related costs.





On
      May 9,
      2007 the Company announced that as part of its comprehensive operational review
      of strategic manufacturing alternatives, it entered into a lease agreement
      to
      relocate its Philadelphia operations to the Philadelphia Navy Yard. The lease
      provides for no rent payments in the first year of occupancy. Rental payments
      increase from $3.5 million in the second year of occupancy to $7.2 million
      in
      the final year of the lease. As part of this initiative, the Company also
      entered into a 16-year tenant improvements agreement for $9.5 million in
      facility improvements. This agreement provides for no payments in the first
      year
      of occupancy and then requires equal monthly payments of $0.1 million over
      the
      remainder of the term. Site preparation is expected to begin immediately and
      construction is expected to be completed during the second half of 2009. The
      Company expects the new facility to be fully operational in 2010. In connection
      with these agreements, the Company is required to provide an initial $1 million
      letter of credit, which will increase to $8 million by the beginning of 2009.
      The outstanding amount of the letter of credit will be reduced starting in
      year
      17 and will be eliminated by year 26 of the lease term. The Company is also
      obligated to enter into an agreement to lease approximately 35,000 square feet
      of nearby corporate office space for its headquarters as a condition of the
      agreements described above.





In
      addition to the facility leases, the Company expects to purchase high-tech,
      modern baking equipment. The investment for this project, in addition to any
      costs associated with the facility leases described above, is projected to
      be
      approximately $75 million through 2010. To finance this investment and refinance
      the Company’s existing revolving credit facilities, as well as to provide for
      financial flexibility in running the ongoing operations and working capital
      needs, the Company has received commitments for a $90 million multi-bank credit
      facility and has received approvals for $32 million in low-interest development
      loans provided in part by the Commonwealth of Pennsylvania and the Philadelphia
      Industrial Development Corporation.  The Company's receipt of
      the funding for its relocation plan outlined above and the equipment
      purchases contemplated by it is subject to various conditions and
      requirements imposed by the lenders. There can be no assurance that the Company
      will satisfy each such condition and thereby obtain all of the loan funds it
      is
      seeking. If any substantial portion of the expected loans is not made available
      to the Company, it may not be able to proceed with its relocation
      plan.





**Cash
      and Cash Equivalents**





Historically,
      the Company has been able to generate sufficient amounts of cash from
      operations. Bank borrowings are used to supplement cash flow from operations
      during periods of cyclical shortages. A credit facility is maintained with
      two
      banks and certain capital and operating leases are utilized.





Book
      overdrafts are recorded within current liabilities. Cash flows associated with
      book overdrafts are classified as financing activities.





On
      September 13, 2005, the Company entered into the Amended Credit Agreement to
      replace its prior credit facility. This Amended Credit Agreement is committed
      until September 2010 in the amount of $35 million, and it eliminated the
      short-term portion of the prior credit facility. On September 13, 2005, the
      Company also entered into a term loan for $5.3 million. The entire proceeds
      of
      the term loan were used to fund a voluntary contribution to the Company’s
      previously frozen Defined Benefit Pension Plan. On December 19, 2005, the
      Company entered into a mortgage loan for $2.15 million and a second term loan
      for $2.55 million in order to fund the purchase of the Hunting Park Bakery
      building and land for $4.7 million from the Defined Benefit Pension Plan.





On
      August
      3, 2005, in order to hedge a portion of the Company’s exposure to changes in
      interest rates the Company entered into a five-year $6 million interest rate
      swap with a fixed LIBOR rate of 4.64%. The Company also entered into two
      five-year interest rate swaps for its term loans for $5.3 and $2.55 million
      on
      September 13 and December 21, 2005 with fixed LIBOR rates of 4.42% and 4.99%,
      respectively. Also on December 21, 2005, the Company entered into a ten- year
      $2.15 million interest rate swap for its mortgage loan with a fixed LIBOR rate
      of 5.08%. The total notional amount for all swaps is $16 million, and the LIBOR
      rates above are subject to an additional credit spread which can range from
      75
      basis points to 140 basis points. It is expected that a one percentage point
      increase in interest rates for the portion of outstanding debt not covered
      by
      swaps would result in additional quarterly expense of approximately
      $20.





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          17 -




For
      the
      quarter ended March 31, 2007, cash used for operating activities totaled $2,322,
      mainly due to an increase in working capital of $4,901. The increase in working
      capital was due to increases in trade receivables of $3,507 and a decrease
      in
      accounts payable, accrued payroll and other current liabilities of $1,053.
      The
      increase in trade receivables reflects growth in the business, while the
      decrease in accounts payable, accrued payroll and other current liabilities
      was
      driven by reduced obligations for employee related costs.





Net
      cash
      used for investing activities for the quarter ended March 31, 2007 was $575,
      primarily consisting of $571 for capital expenditures.





Net
      cash
      from financing activities for the quarter ended March 31, 2007 totaled $2,897,
      primarily driven by borrowings under the Amended and Restated Credit Agreement
      of $3,004, which were used to fund operating and investing
      activities.





The
      Company anticipates that for the foreseeable future cash flow from operations,
      along with availability from the multi-bank and public financings described
      above in “Liquidity and Capital Resources,” will provide sufficient cash to
      allow the Company to execute upon the relocation of its Philadelphia operations
      as well as meet its other operating requirements.





**Critical
      Accounting Policies and Estimates**




Management’s
      Discussion and Analysis of Financial Condition and Results of Operations is
      based on the condensed consolidated financial statements and accompanying notes
      that have been prepared in conformity with GAAP. The preparation of such
      condensed consolidated financial statements requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates.




Included
      in the Company’s Annual Report on Form 10-K for fiscal 2006 are the significant
      accounting policies of the Company, which are described in Note 1 to the
      consolidated financial statements, and the critical accounting estimates, which
      are described in the Management’s Discussion and Analysis of Financial Condition
      and Results of Operations in the 2006 Form 10-K. Information concerning the
      Company’s implementation and impact of new accounting standards is included in
      Note 1 of the condensed consolidated financial statements included herein.
      Otherwise, there were no changes in the Company’s critical accounting policies
      and estimates in the first quarter of 2007 which had a material impact on the
      Company’s financial condition, change in financial condition, liquidity or
      results of operations.





**Contractual
      Obligations**





Information
      regarding the Company’s contractual obligations is included in Item 7,
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations, of the Company’s 2006 Form 10-K. During the quarter ended March 31,
      2007, there were no material changes to the Company’s contractual obligations
      outside the ordinary course of business, other than obligations related to
      income taxes accounted for under FIN 48 as described in Note 9 to the Company’s
      condensed consolidated financial statements included elsewhere
      herein.





**Forward-Looking
      Statements**





Statements
      contained in this Quarterly Report on Form 10-Q, including but not limited
      to
      those under the headings “Risk Factors” and “Management’s Discussion and
      Analysis,” contain "forward-looking statements" within the meaning of the
      Private Securities Litigation Reform Act of 1995, and are subject to the safe
      harbor created by that Act. Such forward-looking statements are based upon
      assumptions by management, as of the date of this Report, including assumptions
      about risks and uncertainties faced by the Company. These forward-looking
      statements can be identified by the use of words such as "anticipate,''
      "believe,'' "could,'' "estimate,'' "expect,'' "intend,'' "may,'' "plan,''
      "predict,'' "project,'' "should,'' "would,'' "is likely to,'' or "is expected
      to'' and other similar terms. They may include comments about relocating
      operations and the funding thereof, strategic manufacturing alternatives, legal
      proceedings, competition within the baking industry, concentration of customers,
      commodity prices, consumer preferences, long-term receivables, inability to
      develop brand recognition in the Company’s expanded markets, production and
      inventory concerns, employee productivity, loss of one or both of the Company’s
      production facilities, availability of capital, fluctuation in interest rates,
      pension expense and related assumptions, changes in long-term corporate bond
      rates or asset returns that could affect the recognition of pension corridor
      expense or income, governmental regulations, protection of the Company’s
      intellectual property and trade secrets and other statements contained herein
      that are not historical facts.





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          18 -




Because
      such forward-looking statements involve risks and uncertainties, various factors
      could cause actual results to differ materially from those expressed or implied
      by such forward-looking statements, including, but not limited to, changes
      in
      general economic or business
      conditions nationally and in the Company’s primary markets, the availability of
      capital upon terms acceptable to the Company, the availability and pricing
      of
      raw materials, the level of demand for the Company’s products, the outcome of
      legal proceedings to which the Company is or may become a party, the actions
      of
      competitors within the packaged food industry, changes in consumer tastes or
      eating habits, the success of business strategies implemented by the Company
      to
      meet future challenges, the costs to lease and fit-out a new facility and
      relocate thereto, the costs and availability of capital to fund improvements
      or
      new facilities and equipment, the retention of key employees, and the ability
      to
      develop and market in a timely and efficient manner new products which are
      accepted by consumers. If any of our assumptions prove incorrect or should
      unanticipated circumstances arise, our actual results could differ materially
      from those anticipated by such forward-looking statements. The differences
      could
      be caused by a number of factors or combination of factors, including, but
      not
      limited to, those factors described in the Company’s 2006 Annual Report on Form
      10-K (“2006 Form 10-K”), “Item 1A, Risk Factors,” as updated below. There can be
      no assurance that the Company will successfully meet all conditions of the
      lease
      or the financing described herein, or that the change to the new manufacturing
      facility will be successful. The Company undertakes no obligation to publicly
      revise or update such forward-looking statements, except as required by law.
      Readers are advised, however, to consult any further public disclosures by
      the
      Company (such as in the Company’s filings with the SEC or in Company press
      releases) on related subjects.





**Item
      3.****Quantitative
      and Qualitative Disclosures about Market Risk**





For
      information regarding the Company’s exposure to certain market risk, see Item
      7A, Quantitative and Qualitative Disclosures about Market Risk, in the 2006
      Form
      10-K. There have been no material changes in the Company’s portfolio of
      financial instruments or market risk exposures from the fiscal 2006 year-end
      to
      the March 31, 2007 balance sheet included herein.





**Item
      4.****Controls
      and Procedures**





(a)
      Evaluation of Disclosure Controls and Procedures





The
      Company maintains disclosure controls and procedures that are designed to ensure
      that information required to be disclosed in the Company’s reports filed or
      submitted pursuant to the Securities Exchange Act of 1934, as amended (the
      “Exchange Act”), is recorded, processed, summarized and reported within the time
      periods specified in the Securities and Exchange Commission’s rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure at a reasonable assurance level that such
      information is accumulated and communicated to the Company’s management,
      including its Chief Executive Officer and Chief Financial Officer, as
      appropriate, to allow timely decisions regarding required
      disclosure.





Management
      of the Company, including the Chief Executive Officer and Chief Financial
      Officer, conducted an evaluation of the effectiveness of the Company’s
      disclosure controls and procedures (as defined in the Exchange Act Rule
      13a-15(e)) as of March 31, 2007. Based upon the evaluation, the Chief Executive
      Officer and the Chief Financial Officer concluded that the Company’s disclosure
      controls and procedures were effective as of March 31, 2007.




(b)
      Changes in Internal Control over Financial Reporting





During
      the
      quarter ended March 31, 2007, there have been no changes in the Company’s
      internal control over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




-
          19 -




**TASTY
      BAKING COMPANY AND SUBSIDIARIES**





**PART
      II. OTHER INFORMATION**





**Item
      1.****Risk
      Factors**





The
      Company’s 2006 Form 10-K includes a discussion of certain risks
      and uncertainties facing it, including those risk factors that
      could cause its actual results to differ materially from those stated in
      forward-looking statements contained in this Quarterly Report on Form
      10-Q.  The new risk factors presented below should be read in conjunction
      with the risk factors and information disclosed in the Company’s 2006 Form 10-K.
      Solely for purposes of the risk factors in this Item 1, the terms, “we,” and
“us” refer to Tasty Baking Company and its subsidiaries.





Indebtedness
      incurred in connection with our strategic manufacturing initiative could
      adversely affect our financial health





On
      May
      9 th ,
      we
      announced that we had entered into agreements to relocate our Philadelphia
      operations. Higher levels of indebtedness associated with this initiative could
      increase our vulnerability to general adverse economic and industry conditions;
      limit our flexibility in planning for and reacting to changes in our business
      and the industry in which we operate; and require that we use a larger portion
      of our cash flow to pay principal and interest thereby reducing availability
      of
      cash to fund working capital, capital expenditures and other operating
      needs.





Our
      inability to successfully implement our strategic manufacturing initiative
      may
      have an adverse effect on results of operations and may restrict our ability
      to
      increase revenues, cash flows and net income





We
      will be
      dependent upon third parties to construct the new facility and to deliver the
      high-tech, modern baking equipment. Unanticipated delays in the completion
      of
      the facility or delivery of new equipment could substantially increase the
      costs
      and ultimately the indebtedness associated with the initiative. Unexpected
      increases in equipment or installation costs could also substantially increase
      the indebtedness associated with the initiative. Unfavorable deviations from
      expected equipment performance or unforeseen difficulties associated with
      transitioning to a new facility could significantly increase the costs of future
      production. Such unanticipated delays, cost increases or unfavorable deviations
      in equipment performance could also restrict the Company’s ability to increase
      revenues and profitability as well as have an adverse impact on our financial
      condition and results of operations.





**Item
      2.****Unregistered
      Sales of Equity Securities and Use of Proceeds**





None
      in
      the first quarter of 2007.




**Item
      6.****Exhibits**





(a)
            Exhibits:


Exhibit
      10
      (a) - Tasty Baking Company Deferred Stock Unit Plan for Directors, is
      incorporated herein by reference to Exhibit 10(o) to Form 10-K for the fiscal
      year ended December 30, 2006.





Exhibit
      10
      (b) - Form of Deferred Stock Unit Award Agreement for the Deferred Stock Unit
      Plan for Directors, is incorporated herein by reference to Exhibit 10(m) to
      Form
      10-K for the fiscal year ended December 30, 2006.





Exhibit
      10
      (c) - Amendment to the Tasty Baking Company Retirement Plan for Directors,
      dated
      February 15, 2007, is incorporated herein by reference to Exhibit 10(n) to
      Form
      10-K for the fiscal year ended December 30, 2006.





Exhibit
      10
      (d) - Severance Pay Plan and Summary Plan Description.





Exhibit
      31
      (a) - Certification of Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.





Exhibit
      31
      (b) - Certification of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.





Exhibit
      32
      - Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.





-
          20 -


**TASTY
      BAKING COMPANY AND SUBSIDIARIES**





**SIGNATURE**







Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Company has
      duly
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.










TASTY
                BAKING COMPANY(Company)May
                10, 2007
            
            /s/
                Paul D. Ridder(Date)
            
            PAUL
                D. RIDDERVICE
                PRESIDENT,CORPORATE
                CONTROLLER ANDCHIEF ACCOUNTING OFFICER(Principal
                Accounting Officer)











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